China's efforts to cool its economy are paying off

MACRO-ADJUSTMENT One of Beijing's official statistics compliers said on Friday that the country's industrial output slackened, a sign that economic growth is slowing down

NY TIMES NEWS SERVICE , HONG KONG

A ceremony participant waits for the start of a ship launch in Shanghai on Friday. A liner capable of carrying 8,500 TEU containers, believed to be the largest of its kind in the world, began its maiden voyage from China's financial hub to North America on Friday, as news that China's economy was finally starting to cool was released.

PHOTO: REUTERS

The odds of an imminent interest rate increase in China fell on Friday, as Beijing announced that industrial production grew at a slightly slower clip last month. At the same time, the expected rate of inflation was said to be below the central bank's threshold for tightening monetary policy.

China's National Bureau of Statistics announced on Friday that industrial output rose 16.2 percent in June compared with a year earlier. That fevered pace, however, was less than the 17.5 percent growth recorded in May and considerably below the 23.2 percent peak in February.

On Friday, The China Daily published excerpts from a high-level government report concluding that recent administrative measures had slowed growth in an economy that has shown signs of overheating and rising inflation. The report emphasized the government's role in directly managing the economy, with a few nods to market-oriented policies.

The report called for the government to "maximize the guiding role of industrial policy while ensuring the fundamental role of market mechanisms in resource allocation."

But the slowing of the economy has failed so far to curb the demand for electricity. Demand is running so far ahead of supply, leading to blackouts, that 6,400 state-owned factories in and around Beijing have been ordered to operate only on alternate weeks through the end of next month, the official New China News Agency reported on Friday.

Western and Chinese economists alike have been increasingly critical in recent weeks of the use of administrative measures to slow the economy, contending that this approach expands the government's role in the economy and puts a premium once again on personal connections.

Many private businesses have complained that they are cut off from bank loans while state-owned enterprises continue to receive them.

The administrative measures used to slow the economy have included orders to state-owned banks to curb lending, a halt to construction projects that have not received all possible government permits and even the arrest of people involved in private-sector projects now deemed to have broken rules.

Raising interest rates instead of imposing administrative measures would probably make more credit available to private businesses, but possibly less to state-owned enterprises.

Many Western economists predict that China will still have to raise interest rates by the end of autumn, because bank deposit rates are currently well below the inflation rate and the main lending rate, at 5.31 percent, may soon be, too.

But China Daily noted official concerns this week that higher interest rates might also draw more speculative investments into China, pushing up the money supply and undoing the braking effects on the economy from higher rates.

Friday's figures on the slackening in industrial production came as experts said they were hearing that Beijing would decide that consumer inflation was at or close to 4.8 percent last month. That would not quite hit the 5 percent level that the People's Bank of China, the central bank, has set as its threshold for taking action.

While the National Bureau of Statistics is not scheduled to release an official figure for inflation in June until July 19, a surprisingly accurate figure for inflation tends to circulate among experts a little more than a week after the end of each month, when the industrial production figure is released.